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Subject: HOA Liens Have Priority Over Banks in Some States
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BruceF1
(Connecticut)

Posts:2480


07/14/2011 6:39 AM  
I've seen statements in this forum that banks ALWAYS get paid first - before HOAs.

Not so; at least not in 16 states according to target=_blank href="http://www.americanbanker.com/issues/176_132/servicers-pains-homeowners-association-fees-1039906-1.html"this article posted on this very site.

We all live in different states with different (although sometimes similar) laws. It always pays to check your own state laws to see if any advice given here applies to you.
BruceF1
(Connecticut)

Posts:2480


07/14/2011 6:45 AM  
Posted By BruceF1 on 07/14/2011 6:39 AM
I've seen statements in this forum that banks ALWAYS get paid first - before HOAs.

Not so; at least not in 16 states according to target=_blank href="http://www.americanbanker.com/issues/176_132/servicers-pains-homeowners-association-fees-1039906-1.html"this article posted on this very site.

We all live in different states with different (although sometimes similar) laws. It always pays to check your own state laws to see if any advice given here applies to you.

Sorry. Messed up the link.

Try this:

I've seen statements in this forum that banks ALWAYS get paid first - before HOAs.

Not so; at least not in 16 states according to this article posted on this very site.

We all live in different states with different (although sometimes similar) laws. It always pays to check your own state laws to see if any advice given here applies to you,

MelissaP1
(Alabama)

Posts:4843


07/14/2011 8:28 AM  
The reference to the banks get paid first is in regards to FORECLOSURES and NOT liens. When a HOA or a bank does a foreclosure, the bank is paid first. The lien is then paid off with whatever proceeds are left over from the foreclosure be it from a HOA or Bank. Otherwise, liens could be paid before a bank gets paid in some situations.

Former HOA President
BruceF1
(Connecticut)

Posts:2480


07/14/2011 9:28 AM  
Posted By MelissaP1 on 07/14/2011 8:28 AM
The reference to the banks get paid first is in regards to FORECLOSURES and NOT liens. When a HOA or a bank does a foreclosure, the bank is paid first. The lien is then paid off with whatever proceeds are left over from the foreclosure be it from a HOA or Bank. Otherwise, liens could be paid before a bank gets paid in some situations.

Read the article. It says, and I quote:"In 16 states and the District of Columbia, homeowners associations have "super lien" priority ahead of the first mortgage, meaning they get to collect unpaid dues and assessments before a bank can foreclose."

In other words, the bank is not allowed to foreclose unless the HOA gets their money first. So, either the homeowner has to pay off the HOA, or the bank pays off the HOA so they can foreclose and get their money. No matter how you slice it or what words you use, in those states the HOA gets their money first.

Obviously, the bank will tack on the amount paid to the HOA to the outstanding loan balance so the result is the same: any proceeds left over from the foreclosure are reduced. But, the fact that the HOA must be paid first apparently is creating a hardship for some banks. At least, that's what I get from the article.

In the remaining states it probably works just as you say it does.
SheliaH
(Indiana)

Posts:820


07/14/2011 9:51 AM  
I wish our state had some sort of superlien law. Indiana is finally passing some HOA laws, although the wording of a few make me wonder if anyone in the state legislature talked to HOA board members about their financial problems. We can file liens (as treasurer of my HOA, I've signed at least 4 this year), but they always seem to get wiped out by a bank who finally decided to foreclose and NO ONE pays anything on the delinquent fees. If we could get at least a year's worth of fees, that would be a lot better than eating thousands of dollars in fees and legal expenses.

I read the article from American Banker (noted in the news section of this website) and it's interesting how the banks are now whining about what they call "junk" HOA fees and how they "didn't know" the property was in a HOA. Then again, it appears lots of homeowners don't find out about HOAs either until after the fact, making me wonder how much homework is done before closing.

LawrenceC1
(Georgia)

Posts:480


07/14/2011 10:59 AM  
In case anyone is wondering about their state, the 16 states with a super lien provision are:

Alabama
Alaska
Arizona
Colorado
Connecticut
Florida
Massachusetts
Minnesota
Nevada
New Jersey
New York
Oregon
Pennsylvania
Rhode Island
Washington
West Virginia

Plus, the District of Columbia.

The laws are different in each state -- in some the super lien applies only to condominiums. Check your local laws.


MelissaP1
(Alabama)

Posts:4843


07/14/2011 12:17 PM  
Yes, we do have the "Super lien" in Alabama. However, it's not as simple as it appears. There are conditions and circumstances that isn't always the best option to go with. From what I understand it more expensive and complicated. Which is probably why our lawyer never filed them. With the right circumstances and money this is a good option. With liens it is always a hurry up and wait situation anyways super or not...

Former HOA President
BruceF1
(Connecticut)

Posts:2480


07/14/2011 1:26 PM  
We sort of have it here in Connecticut, but only if the HOA records its lien before the bank does. Of course, that never happens because you can't get the mortgage in the first place if the title isn't clear, so the bank always ends up with the first recorded lien and has priority (except if you become delinquent on property taxes but that doesn't happen either because of tax escrow accounts). Not only that, but the banks are smart enough to add a rider to their mortgage contracts that says they have the right to pay any delinquent HOA fees and make them part of the outstanding indebtedness to the bank. Thus, the HOA never has a reason to foreclose and the banks hold all the cards (and, they avoid the so-called "junk fees" mentioned in the article.

Still, the article is interesting. According to the article, there was a case where an HOA foreclosed on a bank!
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